Effect of 2003 tax law on investment strategies Fm Vanguard

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Effect of 2003 tax law on investment strategies Fm Vanguard

Post by Oliver » Wed Sep 24, 2003 5:16 pm

https://flagship3.vanguard.com/VGApp/hn ... 3_ALL.html

FYI - There are significant benefits if one can keep one's income in the 15% tax bracket. Dividends and LT capital gains are taxed at 5% except in 2008. :DIn 2008, the rate is ZERO. :shock:Time for some
taxable gain harvesting!


7,800 Single 0%
13,000 Single 10%
35,000 Single 15%

15,500 Married 0%
25,000 Married 10%
71,000 Married 15%

Your effective income tax rate is estimated at 10.72%.
This is 10.72% of your total income of $71,000. 10.72% would also be your effective tax rate. Your income puts you in the 15.00% tax bracket. Your total Federal income taxes are estimated at $7,610. This calculator uses the new 2003 tax tables and rules passed with the 'Jobs and Growth Tax Relief Reconciliation Act of 2003'.

Your Income Tax Rates
Effective tax rate 10.72%
Income tax bracket 15.00%
Marginal tax rate 15.00%

Your marginal tax rate is estimated at 15.00%.
Based on your filing status, incomes over $209,250 begin having their personal exemptions phased out. In addition, itemized deductions begin to be phased out at $139,500. The child tax credit of $1,000 per child begins to be phased out at $110,000. This increases your tax bill, and your marginal tax rate. Including these phase outs can increase your tax bill. For example, if you earn an additional $1,000 you will owe income taxes at a 15.00% marginal tax rate.

How should you use your effective and marginal tax rates?
You should use your effective tax rate when estimating your total tax liability for a year. For example, if you are planning your retirement and wish to estimate your tax liability for an entire year, you should use your effective tax rate. Your marginal tax rate is useful when calculating taxes on additional income, such as the taxes on a windfall or a year end bonus. You can also use your actual tax bracket for these calculations, although it does not take the phase out of any tax deductions into account.

Tax Calculation Summary

Tax Calculation Summary
Wages, salaries, tips, etc $71,000
Filing status Married filing jointly
Personal exemption yes
Spouse exemption yes
Dependents qualifying for child tax credit 0
Itemized deductions $0
Itemized deductions after phase out
( for Married filing jointly Filers with incomes over $139,500.) $0
Standard deduction $9,500
Deduction to use
(higher of adjusted itemized deductions and standard deduction) $9,500
Deduction for exemptions
(including phase out for Married filing jointly Filers with incomes over $209,250.) $6,100
Taxable income $55,400
Child tax credit
(including phase out for Married filing jointly Filers with incomes over $110,000.) $0
Total tax $7,610

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Post by eridanus » Wed Sep 24, 2003 7:18 pm

Hi Oliver,

I've seriously thought about quitting work in early 2008, taking the year off, and selling one of my rentals. I could then realize the gain tax-free (minus recapture) and either buy another property or start a bond ladder.

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Will Congress make the tax cuts permanent? abolish them?

Post by therealchips » Thu Sep 25, 2003 12:57 pm

I speculate that as the scheduled expiration of the tax cuts gets closer, Congress will come under irrestible pressure to extend them or make them permanent. Another possibility, remote I think, is repeal of the tax cuts entirely. (That sort of thing was Mondale's ticket to the White House. :wink:)

I don't think the following source would ever be mistaken for a friend of the taxpayer: http://www.taxfoundation.org/foundation ... 06-03.html
FWIW, the comment from that source is this:
If lawmakers do not make the 2001 Act permanent, millions of families will see a dramatic increase in their tax bills in 2011. Tax Foundation economists have estimated that the typical family of four will see their income tax bill increase by $2,222, or 42 percent, between 2010 and 2011.

As serious as the sunsetting of tax cuts is for families, it is most troubling for those seniors who must plan for passing their estates on to their children. The 2001 bill gradually phased out the estate tax between 2002 and 2009 and fully repealed the tax in 2010. But unless lawmakers make the repeal permanent, the tax will spring back to life in 2011, taxing estates at rates as high as 55 percent. Needless to say, this uncertainty has made estate planning impossible and led to dark jokes that children will hasten their parents' departure in 2010 before the old rates kick in.

The complexity spawned by the 2001 bill was made even worse when President Bush recently signed this year's $350 billion tax cut bill into law. This bill accelerates the phased-in tax cuts in the 2001 bill - including the reduction of marginal tax rates and the expansion of the child credit - into this year. However, to comply with the demands of a handful of Senators that the bill be no greater than $350 billion over ten years, lawmakers once again reverted to sunsets to make the bill appear less costly than it really is.

The expression less costly than it really is implies to me a grudging prediction that Congress will make the tax cuts permanent, since otherwise all their costs happen before the tax breaks expire at sunset, so that the real costs and the apparent costs would be the same.

To explain my Mondale reference: http://www.wikipedia.org/wiki/Walter_Mondale
When he made his acceptance speech at the Democratic Convention, Mondale said: "Let's tell the truth. Mr. Reagan will raise taxes, and so will I. He won't tell you. I just did." Although he intended this to demonstrate that he was honest while Reagan was hypocritical, it was widely remembered as simply a campaign pledge to raise taxes, and it hurt him in the end. In 1986, Reagan did sign into law a bill that raised taxes for corporations, but at the same time cut taxes further for individual taxpayers.

In the 1984 election, Mondale was defeated in a landslide, winning only the District of Columbia and his home state of Minnesota, thus securing only 13 electoral votes to Reagan's 525.
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]


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Post by Oliver » Sat Sep 27, 2003 1:37 pm

Has anyone seen any info on how the capital gains will work when based on the marginal tax bracket? In order to clarify my question, I have created the example below.

Single retired taxpayer

Interest and short term capital gains = $10,000
Long-term capital gain = $100,000

Long-term capital gains are taxed at 5% for taxpayers in the 10%-15% tax brackets. An income of $10,000 would clearly qualify as being in a tax bracket that would qualify for the 5% tax on capital gains. However, I have a sneaky suspicion that the actual implementation of this will result in only part of the $100,000 gain being taxed at the 5% level. With no evidence at all, I would guess at the following:

Max $ income that falls in the 15% bracket ($35,000)
- Income excluding LGT capital gains ($10,000)
Amount of Long-term capital gain subject to 5% tax ($25,000)

Long-term capital gain = $100,000
- Amount of Long-term capital gain subject to 5% tax ($25,000)
Amount of Long-term capital gain subject to 15% tax ($75,000)

I hope I am wrong!


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Is there another online up-to-date income tax calculator?

Post by therealchips » Sat Sep 27, 2003 2:15 pm

As I understand it, eligibility for the 5% tax rate depends on total income including capital gains. Here's a source to answer the question:

http://www.smartmoney.com/tax/filing/in ... bushtaxcut
Filing Status Single
Gross Income 0
Itemized Deduction (blank)
Dividend income: $10,000
Short term capital gains 0
Short tem capital losses 0
Long-Term capital gains 100000
long term capital losses 0
personal exemption (blank)
dependents (blank)
Estimates of Tax Bills under existing law and under proposed Bush Plan:
Under Exiting tax law: $18,210
Under Bush Tax Plan: $12,710
Estimated Annual Tax Savings: $5,5000
Percentage Tax Savings Under the Bush Plan: 30.20%

The blanks tell the calculator to use default values, I think. I'm not sure that I interpreted your question correctly. Also, there may a more accurate or more up-to-date online calculator to estimate income taxes under the new law. If you find another one, please let me know.
He who has lived obscurely and quietly has lived well. [Latin: Bene qui latuit, bene vixit.]


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For Gold & Precious metal lovers everywhere..

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http://www.timesonline.co.uk/article/0, ... 14,00.html

Precious Metals news page


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